CIT Group paper dips; Harrah's debt structure gains post-numbers; GM loan higher, bonds softer

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., April 28 - CIT Group Inc.'s corporate debt took a hit on Tuesday, but traders were not sure what prompted the move.

Sources saw the commercial lender's debt declining as much as 3.5 points on the day, with no fresh news to act as a catalyst. However, last week brought a fair amount of press for the company as it posted yet another quarterly loss.

Meanwhile, Harrah's Entertainment Inc. reported its quarterly results late Monday night. And, come Tuesday, the casino operator's debt structure was seen moving higher, though the numbers still showed signs of weakness.

General Motors Corp.'s bank debt continued to drive its way up following news Monday of a debt swap. But the bonds, which had also gained ground in the previous session, reversed direction and ended the day a tad lower.

CIT paper dips

CIT Group's bonds dropped as much as 3.5 points on the day, according to market players, though there was no explanation for the declines.

A trader said the 5.6% notes due 2011 were the most active of the issues traded, falling 3.5 points to 63. He said that about $27 million of the paper traded.

"For the most part, those were down 1 to 3 points," he said.

Another source quoted the 5.4% notes due 2012 at 58 bid, 60 offered, a loss of 2 points day over day.

Yet another source saw the 5% notes due 2014 down as much as 6 points on the day, at the 46 level.

Meantime credit-default swaps used to protect holders of CIT debt against a possible default widened to their highest cost in almost six months, hitting an upfront price of 35.5%, up from 32% on Monday, plus $500,000 annually to insure $10 million of debt for five years. That debt protection cost has ballooned by 12 percentage points since the major rating agencies last week unceremoniously dumped the New York-based commercial lender into junk territory.

There was no new news out on the financial entity, negative or otherwise. However, last week, there was no lack for negative news.

On Thursday, CIT reported its eighth loss in a row, coming in at $438.1 million for the first quarter of 2009. For the same quarter in 2008, the company posted a loss of $240.7 million.

Additionally, the company warned that it could see losses well into 2010 and that it had set aside $535.4 million thus far to cover bad debts.

"Our results this quarter reflect the ongoing stress in the economy," said Jeffrey M. Peek, chairman and chief executive officer, in a press release.

"The current economic conditions significantly pressured certain segments of the middle market while tightness in the credit markets has resulted in higher borrowing costs and compressed margins. These factors, in conjunction with our commitment to maintaining a strong balance sheet, led to our decisions to increase loan loss reserves and suspend our common dividend."

Following the release of the quarterly results, Fitch Ratings, Moody's Investors Service and Standard & Poor's cut their rating on the company.

"Moody's currently estimates that the global default rate for speculative-grade corporates, which includes the middle market companies that CIT serves, will increase this year to nearly 15% from a first quarter level of about 7%," said Moody's senior credit officer Mark Wasden in a statement on Friday. "This suggests a degree of uncertainty regarding CIT's performance in the current environment."

Harrah's debt gets lucky

Harrah's Entertainment's debt structure moved higher following what one trader called "pretty good" numbers.

The trader called the 5¾% notes due 2017 better by 3 to 4 points at 26 bid, 27 offered. He also saw the 8 1/8% notes due 2011 at 44.75 and the 7 7/8% notes due 2010 at 58.5. For both issues, that equaled a gain of more than 3 points on the day.

Another source placed the 5¾% notes at 24 bid, while yet another said the paper was in a 24.5 "type of level."

The latter source also saw the 10¾% notes due 2016 at 29.5 bid, 31 offered, calling that 3.5 points firmer. The 5½% notes due 2010 moved up 4 points to 54.5 bid, 55.5 offered.

Meanwhile, a bank debt trader speculated that the gains came because EBITDA was not down as much as was expected in the market. He quoted the term loan B at 68½ bid, 70½ offered context, up from Monday's levels in the 65½ bid, 67½ offered context.

For the first quarter, Harrah's Operating's adjusted EBITDA was $407.3 million, down 8.3% from $444.3 million in the first quarter of 2008.

Revenues for the quarter were $1.756, down 10.4% from $1.955 in the prior year.

And, loss from operations was $218.2, down 24.6% from income from operations of $289.2 million in 2008.

Parent company Harrah's Entertainment Inc. also reported declines in EBITDA, revenue and income for the first quarter.

The company's adjusted EBITDA was $547.3 million, down 12.6% from $626 million in the comparable period last year.

Revenues for the quarter were $2.255 billion, down 13.3% from $2.601 billion in the 2008 first quarter.

And, income from operations was $285.4 million, compared with income from operations of $401.0 million last year.

"Our first-quarter results continued to be impacted by the economic slump that has reduced consumer spending, but the improvement in our operating margins over those of the past few quarters indicates our expense-reduction efforts are paying off," said Gary Loveman, chairman, president and chief executive officer, in a news release.

Harrah's is a Las Vegas-based provider of branded casino entertainment.

Elsewhere in the gaming sector, MGM Mirage Inc.'s 5 7/8% notes due 2014 closed "up a little bit" to 48.5 bid, 49.5 offered, a trader said.

GM loan higher, bonds softer

General Motors' term loan continued to make its way to better ground still on news that a notes-for-stock exchange offer is taking place in the hopes of completing an out-of-court restructuring, according to a trader.

The Detroit-based automaker's term loan was quoted at 63½ bid, 64½ offered, up from Monday's levels of 63 bid, 64 offered, the trader said. On Friday, the debt had been seen at 58 bid, 59 offered.

Meanwhile, the company's revolver was unchanged on the day at 53 bid, 55 offered. On Friday, this tranche had been seen at 47½ bid, 49½ offered.

However, the company's bonds came in some after also moving up in the previous session.

A trader placed the 8 3/8% notes due 2033 at 9 3/8 and the 8¼% notes due 2023 at 9, deeming the later down half a point.

On Monday, General Motors announced that it is commencing offerings to exchange 225 shares of its common stock for $27 billion of its unsecured public notes.

The exchange offers will expire on May 26.

If, prior to June 1, the company does not receive enough tenders of notes to consummate the exchange offers, it expects to file for bankruptcy.

Broad market mixed

Elsewhere in the distressed marketplace, Freeport-McMoRan Copper & Gold Inc.'s always-active 8 3/8% notes due 2017 inched up a tad to 97 1/8.

A trader said Quiksilver Inc.'s 7 1/8% notes due 2016 closed unchanged around 60, though the notes traded rather actively. He said that about $20 million of the paper moved, on no news.

Smithfield Foods Inc.'s bonds slowed the declines that began in the previous session following panic regarding the swine flu. After losing as much as 5 points on Monday, the bonds slipped just under a point, the 7% notes due 2011 at 79 and the 7¾% notes due 2017 at 63.25.

Also, a trader said there "definitely was activity" in Pilgrim's Pride Corp.'s 7 5/8% notes due 2015, which have been "drifting higher." He saw "all the trades happen" in a 78.5 to 79 context.

Another market source saw the company's bonds at 78.25, on mid-afternoon volume of $11 million, making it one of the busier issues on the day, while the bankrupt Pittsburg, Texas-based poultry producer's 8 3/8% notes due 2017 hung in around the 60 level on about $5 million traded.

Paul Deckleman contributed to this article.

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